How to Fund Your Business Without Creating Debt!
Q: How can I fund my business without creating debt? J. Bosworth Queens, NY. USA
Financial stress can take a toll on us like no other, especially when so much is at stake. What if I were to tell you that there was a way to fund your business without creating debt? You may have been told that going to friends and family for business funding or using your own personal assets as leverage is a possible business funding alternative, but I am going to strongly advise you against it.
With all that is going right now, we are going to give you a plan to build your business on a solid foundation and fund your business without debt. Then we will give you a sound alternatives to traditional debt funding for your business and help reduce your stress levels.
How to Fund Your Business Without an Small Business Loan.
First, I would like to touch on a few of the possible reasons that you’re having trouble with the bank and some misconceptions about small business loans. Small business loans are usually considered by the bank to be higher risk than some other types of loans such as mortgages that are borrowed against real property that can be sold to recover most if not all of the loan should it go into default. Unless you own the building you do business in (not including your home), you most likely don’t have any “real assets” to borrow against thus making your loan a higher risk. The take away here is not to look at this as a personal rejection. In fact, your banker may have been doing you a favor. I am not a real fan of small businesses acquiring debt in the first place.
There are times when you could use a little cash flow help such as when you need to purchase additional inventory. Here are two possible options if you are purchasing a large quantity of inventory, you had better already have a buyer for it. They should have made a deposit and given you a purchase order with the balance due on delivery. With these two things you could go into your bank and ask for a business “Line of Credit”. This is for short term use only and you should never carry a balance on this for more than thirty days.
If your bank loan need is more long term, I have a second alternative for you and a strong word of caution. Depending on just how much you need and why you were looking to the bank for help in the first place, you could do one of two things. First, set up a dedicated revenue stream and apply all net monies to whatever you were going to borrow the money for in the first place. This way you are able to fund your business without creating debt and when your project is completely funded you now have an additional source of income to use on other business growth projects.
Fund Your Business Without Creating Debt with Investor Capital
If this is not an option at the current moment, you might want to consider going to a venture cap company and taking on a short term investor. They are all about making money so any insights they may offer will only serve you to become more successful. Usually they will invest a large sum of cash into your business for a percentage of ownership and profit. When they have made their money they will want to get out and move on to the next deal. So, though it may feel like you are giving up a lot of ownership at the time, remember this is just short term and if they make money, so will you. The difference is you will be funding your business without creating debt.
Now a strong word of caution. Never, and I mean NEVER, risk your own assets to cover business expenses. Don’t take a loan out on your house, don’t max out your credit cards, and don’t take loans that are guaranteed by you personally or against your personal assets. If your business venture should run into trouble you don’t want to also end up homeless.
There is also one other reason people don’t often think about when using their own assets. Knowing what you have personally put on the line will often cause so much added stress that you may find yourself very fatigued and not always thinking clearly. Decisions and choices may be made that are not well thought out and that will in fact, lead to the eventual end of your business.
A large part of being successful is making good choices and decisions and you can’t do that if you are overly stress about your financial debt and operating in a mental fog. So do yourself a favor and tips the odds in your favor. Start your business. Grow your own business, but fund your business without creating debt.
One last note, borrowing from friends and family is nearly always a bad idea. We have rarely seen it end well with all parties still feeling good about each other. If you want to loose a friend or relationship, this is a very effective way to do it. You are in the business world and it is better to fund your business without creating debt using the alternatives we mentioned above.
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